U.S. Supreme Court Re-Opens the Door to Business Method Patents

July 2010

In a June 28, 2010 decision involving the patentability of business methods, the U.S. Supreme Court rejected the "machine-or-transformation" test handed down by the U.S. Court of Appeal for the Federal Circuit in October of 2008. (We wrote about that decision here.) This test was articulated by the Federal Circuit in an attempt to better define the patentability of business methods. In practice, the test has proven to be unworkable, and the patent office has struggled to apply it. In this author's view, this test was also unnecessarily restrictive.

In Bilski v. Kappos, 130 S. Ct. 3218 (2010), the U.S. Supreme Court considered the patentability of a procedure for instructing buyers and sellers how to protect against the risk of price fluctuations in a discrete section of the economy. Although the Court ultimately concluded that this "procedure" was not patentable, its reasons for doing so differed from the Federal Circuit's reasoning. In explaining its analysis, the Court emphasized repeatedly that "laws of nature, physical phenomena and abstract ideas" are not patentable; however, the Court concluded that nothing in the law required a "process" to be tied to a machine or transformation of an article-the very test articulated by the Federal Circuit.

Significantly, the Court held that Section 101 of the Patent Act cannot be read to categorically exclude business methods. The Court acknowledged that the term "business method" has never been clearly defined and expressed a concern that a blanket exclusion from patentability for business methods may encompass other inventions like software. The court stated that although the "machine-or-transformation" test is a useful tool, it is not the only standard to be applied in determining the patentability of so-called business methods. The Court then threw the door open to the patentability of such inventions, explaining that the law must evolve with innovation. In the Court's view, the "machine-or-transformation" test would ultimately stymie the development of patent law by not allowing some of the more innovative technologies to be patented.

In his dissent, Justice Stevens argued that "a claim that merely describes a method of doing business" is not a "process" under Section 101 of the Patent Act and should, therefore, be categorically denied patent protection. Justice Stevens never provided a definition of a "business method," and several of his arguments (for example, that business methods can be protected as trade secrets) apply equally to other types of inventions. Justice Stevens argued that the patentability of business methods would stifle business because business owners would be afraid of violating a business method patent; this logic ignores, however, the fact that many business owners have this same "fear" of introducing a product into the market that may be covered by a patent. In addition, Justice Stevens never acknowledges the relationship between "business method" and software inventions, and he does not explain the implications for his position on the patentability of software.

In this author's view, the majority reached the correct decision. The particular "method" at issue in Bilski was thrown out as non-patentable, but not due to a categorical exclusion of a particular type of invention. Rather, the invention was deemed non-patentable because it involved an abstract idea. In reaching this conclusion and throwing out the "machine-or-transformation" test as determinative, the Court reminded us that "anything under the sun that is made by man" is patentable (citing Diamond v. Diehr, 450 U.S. 175 (1981)). Most importantly, the U.S. Supreme Court's decision in Bilski serves as an affirmation that every aspect of the law-but particularly patent law by its nature-must be flexible enough to encompass advances in technology, including those that are unforeseen to us today.


Amicable photo of Toni

Antoinette M. Tease, P.L.L.C.